FREQUENTLY ASKED QUESTIONS REGARDING
-compiled
and previously mailed to ND elevators Q 1:
What is the credit-sale contract indemnity fund? A:
This fund was created by the 2003 Legislature to provide partial
protection for unpaid credit-sale contracts in grain elevator or grain
buyer insolvencies. Money
will come from a 0.2% (.002) assessment on all credit-sale contracts, to
be deposited in a fund administered by the Public Service Commission.
Collections will continue until the fund reaches $10 million
(estimated 7 years). Assessments
will then cease unless and until claims reduce the fund to $5 million,
assessments would then resume to rebuild the fund. Q 2:
How much coverage does the indemnity fund provide to a seller? A:
Each patron’s coverage is limited to 80% of their unpaid
credit-sale contracts with the insolvent buyer, up to a maximum payout
of $280,000. For example: $50,000 in contracts = $40,000 payout; $150,000 in contracts
= $120,000 payout; $350,000 or more in contracts = maximum $280,000
payout. Assessments are to
be collected on all credit-sale contracts, even if a farmer has more
than $350,000 in outstanding contracts. Q 3:
What is a credit-sale contract? A:
North Dakota Century Code 60-02-01(2) defines a credit-sale
contract as “. . . a written contract for the sale of grain pursuant
to which the sales price is to be paid or may be paid more than 30
days after the delivery or release of the grain for sale . . .
Where a part of the sale price of a contract for the sale
of grain is to be paid or may be paid more than 30 days after the
delivery or release of the grain for sale, only such part of the
contract is a credit-sale contract.” Q 4:
What are common kinds of credit-sale contracts? A:
Common forms of credit-sale contracts include:
deferred payments, delayed pricing, NPE, installment sales, or
variations of these contracts by another name.
These agreements are not, however, always credit-sales - the key
is 30 days. For
example, a deferred payment contract written on December 3 for January 2
payment is not a credit-sale contract and would have no assessment taken
against it because payment is made within 30 days.
Conversely, a deferred payment contract written on December 3 for
payment on January 5 is a credit-sale, since payment is more than 30
days after the release date. Q 5:
What if a farmer enters into a contract on December 3rd
that provides for payment on January 5th, but the farmer
later requests and receives payment on January 2nd?
Is this a credit-sale? A:
Opinions differ, but the PSC believes that the answer is
“no.” The original contract was a credit-sale because payment was
to be made after 30 days. However,
that contract was amended when both parties agreed to payment in 30 days
or less. Because payment
was made in 30 days or less, it is not a credit-sale and no assessment
is payable. Q 6:
What about delayed pricing contracts in which the farmer might
pick a price any time within the next six or nine months? A:
Again, 30 days is the key.
Any money that is paid out in 30 days or less is not a
credit-sale and is not subject to the fund’s assessment.
Payments that are made more than 30 days after title passes are
credit-sale transactions and are subject to the assessment. Q 7:
What if the contract is signed on December 5th and it
provides for a “window” of payment options (e.g. “Payment will be
made between January 1 – 15.”)?
Is this a credit-sale? A:
It depends on when the payment is actually made.
If the licensee pays for the grain in 30 days or less, the
transaction is a not a credit-sale and no assessment should be
collected. If payment is
made after more than 30 days, the transaction is a credit-sale and
indemnity fund assessments are payable. Q 8:
Do I collect the assessment if I give an advance on a contract? A:
If the contract provides for an advance within the first 30 days,
the portion advanced is not a credit-sale and would not be subject to
the assessment. If there is
a delayed advance of more than 30 days from the execution of the
contract, then that portion is a credit-sale and is subject to the
assessment. Any payments
made more than 30 days after the contract is executed are credit-sales
that are subject to assessment. Q 9:
When will assessments begin? A:
Assessments begin on August 2, 2003.
Contracts executed prior to August 2, 2003, are not to be
assessed and are not eligible for protection from the Indemnity Fund if
the buyer becomes insolvent. Contracts
may not be re-executed after August 1st in order to create
protection. Q 10:
On what amount is the assessment to be taken? A:
On the value of the grain, after quality discounts are taken, but
before any fees are subtracted. Q 11:
Whose contracts are assessed? A:
All credit-sale contracts should be assessed, regardless of
whether the seller is a farmer or another elevator or a grain buyer.
Any credit-sale grain purchased by a grain elevator, a grain
buyer, or a processor that is licensed by the PSC is subject to
assessment. Q 12:
How will this program be administered? A:
The Public Service Commission will provide licensees with a short
remittance form that must be returned within 30 days after the end of
each calendar quarter along with the appropriate remittance.
Documentation of the assessment collected must be maintained by
the licensee for review by PSC inspectors. Q 13:
Do I need to submit a report if I didn’t make any payments on
credit-sale contracts during the quarter? A:
Yes. If a licensee
doesn’t submit a report, the Commission has no way of knowing if there
were no credit-sale payments during the quarter or if the licensee
simply forgot to send in the report. Requiring
a report from each licensee every quarter will allow the Commission to
monitor compliance. Q 14:
Do I need to fill out a separate report for each of my firm’s
elevator locations? A:
No. Licensees with
multiple locations can combine their records and submit just one report
and one remittance check. Company
records must, however, be compiled to reflect how the remittance was
calculated and which contracts were involved. Q 15:
Do I need to participate in this program if I am a roving grain
buyer or a federally licensed warehouse with a state grain buyers
license? A:
Yes. Participation
in this program is mandatory. For
federally licensed facilities, collections for this patron funded
program is not prohibited by the United States Warehouse Act. Q 16:
Must I change my contract forms to comply with this new law? A: No. The law requires that assessment amounts must be noted on each contract - it can simply be written on the document. The PSC is advising major grain trade printers that they may want to add a blank for this on future printings. Q 17:
If a seller prices out a delayed pricing contract and puts the
proceeds on a deferred payment contract, do I collect two assessments? A:
No. Assessments are
calculated only when actual payments are made.
If one contract is rolled over into another and no payments are
made at the time of the rollover, no assessment is due.
That will happen when payments are made under the new contract. Q 18:
How about minimum price and basis-fixed or basis-open contracts? A:
Keep in mind the 30 days and the purpose of the contract.
If the contract is a grain purchase contract with a minimum price
feature, but for later delivery, it is not a credit-sale because there
has been no sale. If the
grain has been delivered and put on a delayed pricing contract with one
of these features, and if payment is made more than 30 days later, the
agreement is the credit-sale contract and the assessment should be taken
when payment is made. Q 19:
Is participation in this program voluntary? A:
No. All licensees
and farmers must participate. Farmers
may not “opt-out” and apply for refunds. Q 20:
My elevator has purchased bond coverage to protect deferred
payment contracts. It
appears that we may now have double coverage.
What should we do? A:
That is a decision for each elevator to make but indemnity fund
assessments must be collected and remitted even if credit-sale bond
coverage is in place. In
many instances, credit-sale bond coverage may protect only deferred
payment and installment sales contracts, not delayed pricing contracts.
If there is dual coverage, it is not known which coverage would
step in first in an insolvency. The
PSC might assert that the bond should pay if coverage is available; the
indemnity fund should only step in to pay shortfalls.
A bond company might take the opposite position.
Ultimately, it might be up to a court to decide. Q 21:
What if I’m escrowing deferred payment contract dollars for the
benefit of sellers? A: The assessment is still required. There is nothing in the indemnity fund law to prevent escrowing. That is up to the parties involved in the contract. Q 22:
What if a farmer can't or won't decide what to do with his grain,
or wants to sell his grain on some form of credit-sale contract but then
doesn't sign the contract in a timely manner? A:
State law requires that scale tickets, including those compiled
on an assembly sheet, must be converted into cash, noncredit-sale
contracts, credit-sale contracts, or warehouse receipts within 30 days
after the grain is delivered to the warehouse (60-02-11).
To be valid, a credit-sale contract must be signed; an unsigned
credit-sale contract is not valid and is, in effect, an open scale
ticket. Elevators should
notify farmers concerning their policy regarding the handling of grain
when a farmer fails to give specific instructions or fails to sign a
verbally agreed-to contract. Elevators
can go "cash only" or "delayed pricing only" instead
of accepting grain for storage on warehouse receipts.
This is commonly done by posting a sign and/or writing
disposition instructions on the scale ticket.
However, farmers must be notified, in advance, concerning the
elevator’s policy and discrimination is not permissible. Q 23:
What if the warehouseman makes a mistake and overpays the PSC?
Can he get a refund? A:
The PSC expects to adopt rules to cover this occurrence. It is expected that refunds will be permitted, but only if
the amount involved is significant and if the refund is requested in a
timely manner (like within 60 days).
Refunds would go to the buyer; the buyer would be responsible for
repaying individual farmers. Q 24:
What does the state intend to do to prevent unscrupulous claims
against the fund? A:
Indemnity Fund payments constitute a debt obligation of the
person who caused the payment to be made.
The Legislature has given the Commission the authority to take
legal action against any person / licensee who causes payments to be
made out of the fund. Q 25:
What if I have other questions? A: Call the Public Service Commission at 701-328-4097.
|